Tuesday , June 15 2021

The five keys to the growth of the Chilean economy in 2019, according to Bank of America

Delays in copper exports, declining confidence and still high unemployment are the main risk factors for the local economy, according to Bank of America (BofA).

As a US bank, they turn to the five keys that will mark the path of growth in 2019.

1. GDP will slow slightly, but will remain above 3.0%

Firstly, the BofA report refers to the cooling of Chile's GDP due to the weak expansion of the world economy.

However, the Bank notes that such a delay "should be negligible, as GDP growth remains relatively high – 3.4%".

The investment, according to BofA, will be one of the main catalysts for the local economy. In this sense, the report emphasizes that the confidence of companies and consumers "improved significantly" in the first half of 2018, which kept the economic recovery throughout the year.

"Business confidence is a good indicator in advance and its trend shows that there is still room for accelerating investment growth by the second quarter of 2019," the report said.

Nevertheless, the bank warns that total growth should be reduced for the second half of this year, "as companies and consumers' pace began to decline towards the end of 2018 by re-entering the negative territory."

2. Challenging external scenario for an "open border" economy

For BofA, the main risk for growth comes from the external context that has become less unfavorable to Chile, "as the demand for its major trading partners continues to decline, while the risks of the US-China trade war prevail."

In this sense, the report considers Chile's dependence on copper and warns that the slowdown in the world economy may put pressure on prices for the country's main exports and weaken the trade balance.

"Copper represents more than 50% of Chile's total supplies. The trade balance is weaker than we expected in 2018 with US $ 5.4 billion. compared to $ 7.9 billion. in 2017, the report said.

3. Approval of reforms can boost confidence

Tax and pension reform are another key milestone for an economy in 2019. The Bank of America indicates the positive effect that its approval will receive.

"Two reforms presented last year and still pending approval could boost confidence and provide additional investment advantage in 2020."Says BofA.

In this sense, the report concludes that the impact should be positive in terms of maintaining private consumption and increasing investment.

4. Inflation: slow but steady towards the target

According to BofA, inflation should accelerate this year and even exceed the 3.1% target this year, backed by lower unemployment and ongoing economic recovery.

"We believe that labor market improvements and declining production deficits will continue to generate rising inflationary pressures in 2019," BofA said.

For its part, the report examines the methodological changes in the National Institute of Statistics (INE) and confirms that, although there will be greater uncertainty as to the dynamics of monthly inflation and its seasonal model, "We do not see significant impact on our forecast for this year."

5.- Cycle growth rate of central banks: the word is gradual

Under this inflationary acceleration scenario, BofA has recommended the CB to continue its gradual cycle of interest rate rises over the year, which should result in a 3.75% end-of-year.

"We expect BT concrete to rise to 75 basis points in the first semester and reduce the cycle in the second half of the year to 25 basis points, in line with the economic activity that must remain dynamic in the first six months and then slow to second semester, "the report said.

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